If you like thematic investing, you'll love Polo Ralph Lauren. The New York City-based apparel company embodies two themes that a growing body of stock pickers has embraced enthusiastically: It owns some of the world's great fashion brands, and it is a beneficiary of increasing global wealth, which means more and more people can pay up for fancy threads.
In recent years, Polo and its stock have been at their Sunday best. By the time Polo completes its fiscal year on March 30, annual sales will have climbed 62% over the past three years, to some $4.3 billion. Earnings will have doubled. The stock (symbol RL) has climbed more than five-fold since late 2002.
The shares got a further boost on March 23, when Goldman Sachs upgraded Polo from neutral to buy. They closed at $89.57, up 2.8% for the day and are now within 12% of Goldman's 12-month price target of $100.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In addition to acknowledging the great brand names and strong spending by high-end consumers, Goldman analyst Margaret Mager cited four other reasons for the upgrade:
- Polo is gaining market shares in all of its distribution channels for all of its labels, including the Purple label in the designer category, Polo and Lauren brands in the better-fashion category, and Chaps in the moderate price range. "Retailers such as Saks, Federated Department Stores and Kohl's, among others, consistently indicate the Ralph Lauren family of brands are among the best performing in their stores," Mager says.
- The company is exhibiting strong sales gains in the 282 Ralph Lauren, Club Monoco and Polo outlet stores that it owns.
- Polo has a "robust" pipeline of new products and licensing agreements. For example, the company launched Global Brand Concepts in early 2007 to develop new lifestyle brands. The unit has already announced a plan to launch American Living, a new brand created exclusively for J.C. Penney.
- Management seems intent on improving returns and "maximizing shareholder value." Polo repurchased 840,000 shares in the December quarter for $62 million, and recently announced plans to purchase an additional $250 million worth of stock to augment its ongoing $250 million buyback program.
In sum, Mager says she expects "Polo's powerful operational and earnings momentum to continue with the potential to surprise to the upside."
What are the risks? Pretty much what you'd expect from an apparel company that sells high-priced goods -- the potential for poor execution, fashion missteps or a global economic slowdown. The stock, trading at 22 times the $4.09 per share that Mager expects Polo to earn in the fiscal year that ends March 2008, isn't dirt cheap. But the price isn't unreasonable for a company that Mager thinks can generate long-term earnings growth of 13% to 15% a year. If she's right, this is one stock that could stay in fashion for a long time to come.
-
Have This Conversation to Save Your Family's Money This Holiday SeasonWhile your family is together, talk about the risks of sophisticated financial scams.
-
10 Unbeatable Destinations For A 2025 Shoulder Season VacationLighter crowds, lower prices and mild weather are attractive reasons to travel off-peak.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are SayingFederal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
-
Stock Market Today: Dow Hits New Record Closing HighThe Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
